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China pressures foreign carmakers on prices

Chinese antitrust authorities have said Audi and Chrysler are guilty of monopolistic pricing of spare parts,widening their investigation to include Daimler and BMW, in a bid to force foreign carmakers to reduce prices.

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China cites foreign car makers for 'monopoly practices'

China's government announced Wednesday that it will punish Audi and Chrysler for "monopoly behavior" in setting prices for spare parts and repair services - but didn't provide details. Analysts expect a cash fine in addition to regulatory directives requiring the companies to change their pricing practices.

"It has been found that the two companies showed monopoly behavior, and they will be punished accordingly in the near future," said Li Pumin, a spokesman for the country's powerful central economic management agency, the National Development and Reform Commission (NDRC), at a news conference in Beijing.

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China's government considers using a dominant market position to set prices that achieve high profits as a form of monopolistic behavior. Under Chinese law, violators' "illegal gains" can be confiscated, and they can be fined up to 10 percent of their sales revenue in the previous year.

High prices for spare parts

The NDRC's announcement focused on foreign carmakers' high prices for spare parts, but analysts say the agency is also looking at the pricing of whole cars.

Other foreign carmakers beyond Audi and Chrysler are under NDRC investigation as well. Earlier this week, NDRC anti-monopoly investigators
raided a Shanghai office of Mercedes-Benz, a unit of German auto giant Daimler, grilling employees and inspecting computers.

Daimler responded on Tuesday by saying it was "assisting" the NDRC inquiry - and announced that it would drop prices on spare parts.

"Dealers and consumers have already complained for years," said Yale Zhang, managing director of research firm Automotive Foresight. He said authorities were examining industry-wide practices such as setting minimum retail prices for dealers and limiting who can sell spare parts, which keeps prices higher.

China is a crucial market for German carmakers

China is the biggest market for Audi, Volkswagen's luxury car unit, as well as for BMW, and the fastest-growing regional market for Mercedes-Benz.

For Volkswagen Group as a whole - which includes several brands including Audi, Volkswagen, and Skoda, among others - China is the single most important market. VW is China's market-leading carmaker, with a market share of 21 percent in 2012.

China requires foreign carmakers who want to produce in China to enter into joint ventures with Chinese firms

Most German and other foreign cars sold in China are
produced in China, in joint ventures with Chinese firms. In terms of committed investments in production capacity, as well as total share of global sales, contribution to global profits, and growth potential, China is the biggest game going for German carmakers.

China shows its muscle in car market interventions

"The carmakers should take this signal from China's government seriously. China is now of existential importance to carmakers like VW. The Chinese are showing that they know this, and the government is setting a framework for the future of the industry according to its own judgment," said Ferdinand Dudenhöffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen in Germany.

Dudenhöffer told DW that he didn't see the foreign carmakers' pricing strategies in China as the result of a price-fixing cartel. Instead, the relatively higher prices charged for the same spare parts in China, compared to other markets like the USA or Europe, is in his view a consequence of carmakers' charging what the market will bear in the context of high demand for foreign cars - and declining demand for domestic Chinese brands.

Dudenhöffer says German carmakers should take care to balance their global portfolios - and not rely too much on one national market

"Spare parts are very profitable for the carmakers, and apparently the government is trying to use the spare-parts pricing issue as a way to attack foreign carmakers' pricing strategies as a whole. I can imagine that in coming months, the NDRC's investigation could be broadened to encompass pricing of entire cars, rather than just spare parts, and that they will compare the prices of Mercedes cars - for example in the USA or Germany - with their prices in China," Dudenhöffer said.